Tata Sons Ltd is considering various options about the future of its airline AirAsia India in the context that its Malaysian partner plans to exit, two people familiar with the matter said.
This comes at a time when the Tatas are faced with the daunting task of raising funds to buy Shapoorji Pallonji Group’s 18.4% stake in the Tata group holding company.
The Tata group, which has the first refusal right for Tony Fernandes’ 49% stake in AirAsia Bhd in the Indian airline, is weighing at least three alternatives, the people cited above said.
These are the Mumbai-based conglomerate buying AirAsia Bhd’s full stake in the Indian company or ushering in a strong new investor, such as a private equity firm or sovereign wealth fund, to buy AirAsia Bhd’s stake, they said. . There is also the option of bringing in a strategic player who would acquire the entire stake of the Tata group and AirAsia Bhd in the Indian airline at a loss, the people cited above said on condition of anonymity.
“Other options have also been considered, such as the merger of the AirAsia and Vistara businesses (a 51:49 joint venture between Tata Sons and Singapore Airlines). However, this can be tricky because Vistara is well capitalized and merging the AirAsia India business during a recession can suddenly weaken the merged entity’s finances and cause more funding requirements, increased fixed costs, etc. This may not be desirable for Singapore Airlines, “said one of the two people.
The second person said that Tata Group is reluctant to deploy funds to buy AirAsia Bhd’s stake, as it faces the daunting task of raising capital to buy Shapoorji Pallonji Group in Tata Sons, estimated at approximately ₹1.6 trillion.
AirAsia India, which is 51% owned by the Tata group, has never posted a net profit since its inception in 2014. Meanwhile, AirAsia Bhd, which is facing headwinds due to disruptions in the global air travel market of covid, had in June approached the Tata group to sell its stake, as provided by the terms of the joint venture agreement under which Tata Sons has the right of first refusal, mint previously reported.
AirAsia India has also encountered other turmoil over the years. In 2018, the Central Bureau of Investigation began investigating allegations of bribery and corruption against AirAsia India and some of its top executives, including Fernandes, over key changes in India’s civil aviation policy that were allegedly aimed at benefiting the airline.
AirAsia Bhd’s reluctance to add new capital to AirAsia India has further set the tone for the future.
Commercial standard On Tuesday, the Tata group and AirAsia Bhd are discussing the latter’s departure from AirAsia India in the context of the Malaysian airline obtaining a firm offer of $ 54 million for its stake from a foreign fund.
A spokesperson for the Tata group declined to comment. AirAsia Bhd did not respond to e-mailed inquiries.
“It will be difficult to get someone, be it airlines, funds or other companies, to pick up AirAsia Bhd’s stake in AirAsia India as the current environment is not very conducive,” said Nripendra Singh, Director of Aerospace Industry, Defense Practice and security. in Frost and Sullivan. “No one would want to wait a few years for air passenger traffic to return to 2019 levels. Therefore, debt restructuring will likely be a good way to stabilize the airline.
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